1. Chapter 1
Regulatory Context
© Philip O’Regan 2016

2. Background Importance of accounting information Large range of users
Key role in modern society
Fraud: impact of Enron, WorldCom, etc.
Global Financial Crisis
trust in accounting information eroded
How/whether accounting information should be regulated
Chapter 1
© Philip O’Regan 2016

3. Regulatory framework Important to regulate accounting information:
“power” and influence of accounting information
“laissez-faire” v. “regulated”
government v. commercial interests
conflicting needs of different users
Preparation and dissemination controlled by:
government
professional bodies
regulatory agencies, stock exchanges, etc.
Chapter 1
© Philip O’Regan 2016

4. Regulatory framework – US
“Anglo-American” model – “rules-based”
influence of accounting profession
Government role via Congress and SEC
SEC delegates to private sector
Financial Accounting Standards Board (FASB)
Recent frauds => Sarbanes–Oxley Act (SOX)
key legislative intervention
imposes information/cost burdens on business
Reforms prompted by Global Financial Crisis
Chapter 1
© Philip O’Regan 2016

5. Regulatory framework – UK
Anglo-American model
Reflects US structure/ethos
1970s: Accounting Standards Committee
representatives of main accounting bodies
formulated best practice
Statements of Standard Accounting Practice (SSAPs)
Chapter 1
© Philip O’Regan 2016

6. Accounting Standards Board
Scandals prompted calls for new regime
Dearing Report (1988)
new regulatory structure proposed
need for conceptual framework
Accounting Standards Board (ASB)
subject to Financial Reporting Council (FRC)
more broadly based membership
Urgent Issues Task Force (UITF)
Financial Reporting Review Panel (FRRP)
“principles-based” rather than reactive
Chapter 1
© Philip O’Regan 2016

7. Impact of Financial Crisis
Severe criticism of status quo
reacted slowly and inappropriately
Financial Services Authority replaced by Financial Conduct Authority
new Accounting Council
Greater emphasis on:
timely disclosure
sustainability
governance (including audit)
Chapter 1
© Philip O’Regan 2016

8. International Accounting Standards Committee/Board
International trade and dominance of large multinationals (MNEs)
Calls for international accounting standards
1973: IASC formed
100+ national and representative bodies
issued International Accounting Standards (IAS)
Now called IASB
issues International Financial Reporting Standards (IFRS)
These are the focus of this text
most IAS continue to apply
Chapter 1
© Philip O’Regan 2016

9. IASB ctd. Political entity: IOSCO endorsement Tensions around:
various competing interests
cultural conflict (e.g., US v. EU)
developed v. developing world
harmonization v. standardization v. convergence
IOSCO endorsement
Tensions around:
roles of IASB and national bodies
success of IASB (particularly vis-à-vis FASB)
Chapter 1
© Philip O’Regan 2016

10. Legislative framework – UK
Company accounts regulated by statute
CA81: incorporated EU Fourth Directive
CA85: companies to prepare accounts “in accordance with accounting standards”
CA06: greater disclosure + accountability
Trends:
increased disclosure (including strategic report)
importance of supplementary narrative
statutory recognition of accounting standards
Chapter 1
© Philip O’Regan 2016

11. Nature of companies Common form of business entity
Created by registration
memorandum of association
articles of association
Legal entity separate from owners
Various types:
limited/unlimited
public/private
Chapter 1
© Philip O’Regan 2016

12. Stock Exchange requirements
Only 2,500 + plcs actually listed on LSE
UK Listing Authority (UKLA)
Complex listing rules (“Purple Book”)
Requires that a prospectus be issued
LSE has extensive disclosure requirements
Continuing obligations:
circulars, etc. must receive prior approval
details of many activities must be provided to LSE
Alternative Investment Market (AIM)
Chapter 1
© Philip O’Regan 2016

13. Summary Accounting information a critical arbiter of wealth Role of:
government, regulatory bodies, profession, LSE, etc.
Political nature of accounting practice and regulation means all competing to influence
Annual Report now subject to numerous sources of input
Key document that must be interpreted
Focus of this text
Chapter 1
© Philip O’Regan 2016